How to Make Buying Oil and Gas Leases Easier and Less Risky

Buying Oil & Gas Assets? Grooper the Well Files First.

At the start of 2020 no one could have imagined where the oil & gas industry would be where we find ourselves today. The US onshore shale revolution had already slowed down, rig count was off of its 2018 high, and the industry was dealing with free cash flow drama. The ice had already begun to crack, which is why the global pandemic and ensuing collapse of demand hit like a freight train. Add to that an on again, off again price war between Saudi Arabia and Russia, and there were the makings for a perfect storm.

There used to be a 100 million barrel per day global oil market. The US had reached record production output in 2019 and global supply was steady. Coupled with a sustained slump in demand, there is now a vast chasm between what the world can consume and an oversupply situation. And it’s only going to get worse. Inventory around the world is reaching capacity, such as at the main storage hub in Cushing, Oklahoma. Producers who have not already stopped drilling or shut-in wells due to the historically awful economics will be forced to shut-in production simply because there’s nowhere to store the oil.

Silver Lining to a Perfect Storm

As bleak as it looks for the oil & gas industry, one thing we can always rely on is that supply and demand will find a balance. That disparity will resolve as COVID-19 and shelter in place restrictions eventually lift. For an industry accustomed to boom and bust cycles, this downturn may be especially bad. But there are plenty of oil & gas companies and investors who are either well hedged, have plenty of dry powder, or both.

Bankruptcies are an inevitable reality given the cash flow crisis before and subsequent fallout from the pandemic. We’re already seeing a steady stream of liquidation events. And as companies burn off cash reserves or lose their hedging protection, that stream will turn into a flood, likely toward the end of this year and beginning of 2021. The result will be a strong A&D market, an unfortunate situation for many oil & gas businesses but also a windfall of low cost acquisitions for those who can weather the storm and come out on the other side when commodity prices return to something resembling normal.

Navigating the Paper Well File Problem

Deciding whether or not to buy oil & gas assets is a nontrivial undertaking even under “normal” conditions. But extraordinary times create extraordinary challenges for buyers. Companies forced into bankruptcy in the current situation are hardly likely to meticulously curate their records for the new owner. Instead, expect well and land files to be thrown haphazardly into filing boxes while digital records suffer from information sprawl, duplicate copies, and multiple versions of the truth.

Many buyers are already scrambling to identify acquisition targets and pick through post-bankruptcy asset sales. Not every asset is a bargain, so it’s important to quickly evaluate long-term production potential and risks. Buyers beware though. Your valuation of a deal should not rely solely on type curve analysis and production forecasts. Equal attention must be paid to all of those well files, which hold important historical data on asset performance, maintenance requirements, and field studies. Not to mention the boxes full of leases and land records that may hide a minefield of hidden provisions and obligations.

Post-Acquisition Well File Dilemma

If you’ve ever been on the acquisition side of an oil & gas deal, you know just how chaotic it can be to sort, process, and assimilate asset information. A seller, or bank in the case of bankruptcy, will often ship truckloads of boxes containing hundreds of thousands of documents. If you’re lucky enough to receive a portion of the seller’s well files in digital form, it’s all too often scanned versions of a physical document or PDF. And with widely varying file naming, poorly organized folders, and multiple copies, finding the documents you need can be a real headache.

The big problem for new asset owners is that the clock is ticking. You’ve got new wells to operate in basins, states, or federal lands your team may not be at all familiar with. Importantly, you’ve got hundreds or even thousands of new interest owners who need to be paid. Everything you need to operate your new assets is buried in boxes and digital folders, underscoring the critical need to onboard well and land files as quickly as possible.

Grooper is far more than optical character recognition (OCR). OCR technology has been around for decades, but it hasn’t evolved, which explains why error rates are often over 50%. To accurately extract complex language requires smart algorithms that understand the context of words on a page. That’s what Grooper does and why customers see 99% accuracy.

With Grooper, your team will rapidly onboard acquisition well and land files, reducing the process from weeks or months to days or hours. Don’t have the bandwidth or trying to minimize G&A costs? The second way BIS helps rapidly process unstructured oil & gas data is our Data Migration Center (DMC). Our DMC is a state-of-the-art facility located in central Oklahoma with Grooper at its heart, providing a turnkey service that transforms boxes and drives full of well files into accurately classified and ready to use information.

If you are in the process of acquiring or have recently acquired oil & gas assets, consider sending your boxes of asset data to our DMC. We’ll arrange for a pickup, ship your documents, digitize, convert, classify, and index everything with Grooper. Then send you structured well and land information that your team can immediately put to use.

Here’s a real-world example of the power of Grooper and the BIS-operated DMC. One of the largest, publicly traded operators in the Permian had an extensive backlog of unstructured acquisition and lease records, including more than two thousand leases related to assets in the Permian Basin and the San Juan Basin. This represented nearly half a million pages of lease documents. The Permian operator turned to BIS who processed the vast volume of unstructured data at its DMC facility. Within days, the operator received an SQL extraction file containing structured lease data that could be loaded directly into its land database.

# of Leases Loaded

2,231 Leases

Max # of Leases Loaded/Day

218 Leases

Acquisition Data Received

307 Boxes

Acquisition Document Count

467,142 Pages

Estimated Time Savings

92% Time Reduced

Ready to Accelerate Acquisition Data Onboarding?

Whether you are looking to rapidly evaluate deal potential or seamlessly onboard acquisition data, Grooper and our turnkey data processing solutions will improve your competitive edge and get new assets up and running faster than ever. Contact us today to see for yourself how BIS and Grooper accelerates A&D process, minimizes G&A, and reduces risk.